Stipulated Loss Value (SLV) Threatens to Sink Shippers in Bankruptcy

1. Stipulated LossValue (SLV)
Threatens to Sink Shippers
in Bankruptcy

2. Stipulated LossValue (SLV)Threatens to
Sink Shippers in Bankruptcy
A partner at the international law firm of O’Melveny & Myers, Suzzanne
Uhland chairs the firm’s U.S. restructuring practice, among other things. A
graduate of theYale University Law School, Suzzanne Uhland anticipates
challenges to traditional practices in the establishment and enforcement of
stipulated loss values (SLVs) in commercial shipping bankruptcies.

3. Stipulated LossValue (SLV)Threatens to
Sink Shippers in Bankruptcy
In the wake of the global recession, the shipping industry is experiencing
diminished demand and declining rates, which in turn are leading several firms
to seek protection under bankruptcy laws.These laws provide for the rejection
of burdensome leases. Since many firms lease much of their fleets, this
rejection power can enable companies to shed surplus vessels and their costs.

4. Stipulated LossValue (SLV)Threatens to
Sink Shippers in Bankruptcy
A problem arising from the rejection power, though, is the SLV.This is the
amount that the lessee must pay the lessor if the lease is rejected in
bankruptcy proceedings.The SLV often exceeds actual losses because it
includes anticipated future income.

5. Stipulated LossValue (SLV)Threatens to
Sink Shippers in Bankruptcy
There is precedent for evaluating such SLV claims. In theThird Circuit
proceedings handling theTransWorld Airlines bankruptcy, the court’s decision
makes it difficult for ship owners to enforce claims of damages based on SLVs
when those claims far outstrip actual damages.That decision was based on
the idea that the lessee should not be forced to assume the lessor’s market
risk. Contemporary cases of enforcing SLVs against bankrupt shipping
companies, though, are not all in theThird Circuit and do not all follow that
court’s reasoning, making this an unsettled area of the law.